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Personal Finance

We are dedicated to keeping clients abreast of the latest developments and tax-saving strategies. This section includes a library of hundreds of timely articles about business, taxes, finances, trends and the like. The articles are categorized by subject matter, which can be accessed from the links. Click on your topic of interest and find a wealth of information.

Using Home Equity for Business Needs

Small business owners frequently find it difficult to obtain financing for their businesses without pledging personal assets. With home mortgage interest rates at historic lows, tapping into your home equity is a tempting alternative, but one with tax ramifications that should be carefully considered.

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BUSINESS TOPICS
This section includes frequently encountered topics relating to small businesses. It discusses business deductions, how to avoid underpayment penalties, 1099s and much more....

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IRS Introduces New Safe Harbor Home Office Deduction
Effective for tax years beginning in 2013, taxpayers can elect a simplified deduction for the business use of their home. The deduction is $5 per square foot with a maximum square footage of 300. Thus, the maximum deduction is $1,500 per year.

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Health Savings Accounts Offer Tax Breaks
A Health Savings Account (HSA) is a trust account into which tax-deductible contributions can be made by qualified taxpayers who have high deductible medical insurance plans. Income earned on the HSA balance is tax-free. The funds from these accounts are then used to pay “qualified medical expenses” not covered by the medical insurance for an “eligible individual.”

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Tax Credits for Small Employers Offering Health Coverage
The Patient Protection and Affordable Care Act provides a tax credit for an eligible small employer (ESE) for nonelective contributions to purchase health insurance for its employees. The term "nonelective contribution" means an employer contribution other than an employer contribution pursuant to a salary reduction arrangement.

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When 1099s Must Be Filed
If you use independent contractors to perform services for your trade or business and you pay them $600 or more for the year, you are required to issue them a Form 1099 at the end of the year to avoid facing significant penalties and the loss of the deduction for their labor and expenses.

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What Happens When I Default on a Business Loan?
A loan default is the failure to meet the financial obligations indicated in the loan agreement that is signed by you and your lender. Often, a loan default translates into the business owner's inability to pay their debts on time. Due to the differences in each loan agreement, default penalties vary. However, the effects of defaulting on the loan fall into two general categories- immediate repercussions and future implications for both you and your business.

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Penalties for Failure to File or Furnish Information Returns
Tax law requires businesses to provide information returns, such as 1099-Misc, to each payee that the business has paid $600 or more for the year.  The law also includes penalties for failure to file the same information returns with the IRS.

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Avoiding Underpayment Penalties
Congress considers our tax system as a "pay-as-you-go" system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the "pay-as-you-go" requirement.

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Looking for Business Tax Deductions? Look No Further Than Your Business Vehicle!
With all the recent changes in the tax laws and regulations, the options for deducting the business use of a vehicle are both numerous and generous. In fact, there are so many options that some can easily be overlooked. Note: When a vehicle is used both for personal and business use, the expenses must be prorated based on miles driven for each purpose.

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Mixing Business With Pleasure
It is not coincidental that most conventions are held in resort areas during the spring through early fall months. Convention planners know quite well that convention timing and location is the key to its success. If planned properly, attendees can deduct a portion of the expenses for establishing business relationships and gaining business knowledge while enjoying a mini-vacation.

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Self-Employed Education Twists
Self-employed taxpayers should consider their options carefully when it comes to applying tax benefits for their own education tuition and expenses. Tax law provides multiple ways to benefit from the educational expenses and one may provide more benefit to you than another based on your particular set of circumstances. In addition, your tuition may qualify for one tax benefit while other education expenses qualify for another.

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Employing a Family Member
Another way to reduce the overall family tax bill is by employing family members to work in your business by shifting income to them and providing them with employment benefits.

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Health Insurance for the Self-Employed
Becoming self-employed means leaving the comfort of affordable and easily obtainable health insurance. The following tips may save you some of the frustration you may encounter as a self-employed individual in the market for health insurance.

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Using Home Equity for Business Needs
Small business owners frequently find it difficult to obtain financing for their businesses without pledging personal assets. With home mortgage interest rates at historic lows, tapping into your home equity is a tempting alternative, but one with tax ramifications that should be carefully considered.

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Thinking About Incorporating?
The decision on whether or not to incorporate involves a number of complicated issues. All too often, taxpayers make unwise decisions based on misconceptions of tax benefits available to corporate entities. It is not uncommon at social gatherings to overhear someone talking about incorporating in order to write off this or that. Generally, there is little difference between expenses that are deductible as an individual doing business versus that of a corporation.

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Which is Better - Keogh or SEP?
Retirement plans available to a self-employed individual vary from the very fundamental to the complex variety, which require the services of professional pension plan administrators. Among the plans available are the Keogh, SEP, and Defined Benefit and Simple IRA plans.

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Leave Your Business to Your Family - Not the Government
Successfully passing a family business to the family upon death of the owner is not an easy task. Most business owners fail to realize the importance of a sound business succession plan. As a result, only about half of all family businesses are transferred to the next generation. A significant number are forced to look elsewhere for capital and management expertise.

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Lodging Expense Requires Substantiation
Self-employed individuals who pay for lodging expenses while away from home on business can deduct these lodging expenses only if they are substantiated in full (record of time, place, amount, and business purpose, plus paid bills or receipts). The expenses can't be substantiated using the lodging component of the federal per-diem rate.

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Luxury Car Rules May Limit Vehicle Write-Offs
Unfortunately, if you deduct actual expenses for business use of your car, you probably find your write-offs for depreciation restricted due to so-called luxury car limitations. And most cars (including trucks or vans) fit the IRS definition of a "luxury vehicle," regardless of their cost. If a vehicle is four-wheeled, used mostly on public roads, and has an unloaded gross weight of no more than 6,000 pounds, the car is considered a "luxury vehicle." 

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Keep Track of Meal & Entertainment Expenses
When looking for deductions to add to your taxes, don’t overlook your meal and entertainment expenses. These types of expenses must be “ordinary” and “necessary” to your business or trade and must be “directly related to” or “associated with” the active conduct of business.

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Start-Up and Organizational Costs
Business owners – especially those operating small businesses – may be helped by the tax law that allows them to deduct up to $5,000 of their start-up expenses in the first year of the business’ operation.

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Special Rules for Business Use of SUVs
Many of today’s sport utility vehicles that are more than 6,000 pounds in gross weight are not subject to the luxury auto rules. Owners using these vehicles for business are able to utilize both the Sec 179 expense deduction and regular depreciation. However, as the Sec 179 expense limits were increased through the years taxpayers were able to write-off the entire business portion cost of most SUVs in the first year. This perceived abuse prompted Congress to impose a cap on the Sec 179 expense deduction as it applies to certain SUVs.

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Preparing for an Unexpected Disaster
The recent hurricanes, tsunamis, and terrorist attacks make it clear that even smaller companies are not immune to an unexpected loss. What can you do to prepare and minimize your risk to ensure that such a disaster won’t run you out of business?

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When Business Property Must Be Depreciated
Whenever property is purchased for use in a business and that property has a useful life of more than one year, its cost must be deducted over its useful life. This accounting procedure is referred to as depreciation. The number of years the property must be depreciated is largely dependent upon the type of property it is, although sometimes the type of business in which it is used also determines its assigned life.

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Do You Need a Business Plan?
Business plans are used primarily for raising capital and guiding growth. Not everyone who starts and runs a business begins with a business plan, but it certainly helps to have one.

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Is It a Business or Hobby?
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

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Don’t Overlook Form 8594 When Buying or Selling a Business
Most businesses are made up of different types of assets, and those assets get different treatment for tax purposes. How those items are identified at the time of the sale/purchase can have a significant tax impact on both the buyer and the seller.

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Are Big-Name Customers Good for Your Business?
When prospecting for new customers, it is usually very positive to note that most businesses already have one or more "big-name" customers in their stable. The prospect will likely believe that the large company chose them based on their superior products or services, and assume that they are a credible supplier. It just may cinch the deal, right?

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Planning - The Key to Business Success
It takes careful planning to keep a business successful. What many family business owners fail to realize is that a succession plan is a necessity, not an option. There are many ways to hand down the business to the next generation, but your main objective is to minimize the impact of estate taxes on your heirs. This will help them avoid having to dispose of the business.

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Self-Employed Pension Plan Contribution Limits
Tax laws provide for plans that allow self-employed individuals to establish retirement plans for themselves and their employees, if they have any. Those most frequently encountered are the SEP (Simplified Employee Pension) and Keogh Profit Sharing Plans.

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Starting Up a Pension Plan – You May Get a Tax Credit!
If you are considering establishing a qualified pension plan for your business, you may be entitled to the “small employer pension start-up credit.” Eligible small employers that adopt a new plan, such as a 401(k), SIMPLE plan, or simplified employee pension plan (SEP), may claim a nonrefundable credit.

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Spouses May Elect Out of Partnership Rules
A provision of tax law allows a husband and wife who file a joint return to elect out of the partnership rules. Thus, a joint venture between them is not treated as a partnership for tax purposes.

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Employee or Independent Contractor?
If you are a small business owner, whether you hire people as independent contractors or as employees will impact the amount of taxes you withhold from their paychecks, as well as how much and what types of taxes you pay.  Furthermore, it will affect how much additional cost your business must bear, what documents and information must be provided to you, and what tax documents must be given to the individuals you are hiring.

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Are Employee Background Checks Right for You?
In a world where 30% of applicants give false or misleading information about their backgrounds, adding employee background checks to the hiring process is the employer’s first line of defense in hiring good people, and possibly avoiding negligent hiring lawsuits.

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Watch Out For Payroll Outsourcing Hazards
In a recent tax court case, an employer (and not the employer’s payroll service provider) was ultimately held responsible for the payment of income tax withholding and the employee and employer portions of the Social Security and Medicare taxes.

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Employer’s Federal Recordkeeping Requirements
Under IRS regulations, employment tax records must be maintained for at least four years after the later of the due date of the tax for the return period to which the records relate, or the date the tax is paid.

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Employee Incentive Awards are Taxable Fringes
If you, as an employer, provide incentives as a way to award top-performing employees for extraordinary accomplishments, you need to keep in mind that they are considered taxable fringe benefits. Thus, awards such as merchandise or a vacation trip are non-cash fringe benefits that are taxable to the employee and deductible by you, the employer, as compensation.

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Reasonable Compensation
The two primary ways of taking money out of a corporation is as compensation for work or as a dividend; each has different tax consequences. Salaries and bonuses are deductible by the corporation and taxable to the recipient employee, whereas dividends are not tax-deductible by the corporation and are taxable to the stockholder recipient. Thus, the dividends are taxed twice.

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Domestic Production Deduction
The domestic production deduction was created to encourage manufacturing and production within the U.S., and at times is confusing, but it provides a beneficial business deduction equal to 9% of the lesser of net income from qualified production activities or 50% of the W-2 wages paid to employees properly allocated to the domestic production activity.

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Can You Write Off a Bad Debt?
Most small businesses have receivables that cannot be collected. These receivables can be from the sale of products, providing services to customers, or a combination of the two.

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Unique Expense Issues
During the year, we encounter a variety of questions regarding what expenses are legitimate for business purposes. Below are three questions that we are frequently asked, along with the answers.

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Marketing and Advertising Expenses
Although marketing and advertising is generally thought of in terms of print ads, flyers and radio and television advertising, they also can include marketing that is intended to portray your business positively. Such marketing creates a long-term potential for business and falls within the ordinary and normal requirements of the tax code.

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Home Office Expenses of a Small Business Organized as a Corporation
Many entrepreneurs and professionals have found it convenient and cost-effective to set up their office or practice in an area in their home. There is no commute time or overhead expenses, and they don’t have to worry about paying someone else office rent. Home-office deductions may be available to these taxpayers whether they are self-employed or employees.

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Fast Write-Off of Business Assets
Section 179 Expensing – Code Section 179 allows taxpayers to elect to treat the cost of Section 179 property as an expense deduction for the tax year in which the Section 179 property is placed in service, instead of having to capitalize the expense and recover the cost over several years. Generally, Section 179 property is acquired by purchase for use in the active conduct of a trade or business, and is generally tangible property to which accelerated cost recovery applies. The property must be used more than 50% for business.

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Credits for Hiring Veterans
Congress recently passed legislation that extends and expands the Work Opportunity Credit (WOTC) for hiring unemployed veterans. This effectively gave a one-year lease on life to the WOTC, with respect to qualified veterans who begin work for the employer before January 1, 2014.

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